Scribd
Upload
28 views10 pages

Linear Transformation of Random Variables

S

Uploaded by

mathlover1979
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
28 views10 pages

Linear Transformation of Random Variables

S

Uploaded by

mathlover1979
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 10

Linear Transformation of Random Variables

Sometimes, it is necessary to apply a linear transformation to a random variable. This lesson explains how
to make a linear transformation and how to compute the mean and variance of the result.

What is a Linear Transformation?

A linear transformation is a change to a variable characterized by one or more of the following


operations: adding a constant to the variable, subtracting a constant from the variable, multiplying the
variable by a constant, and/or dividing the variable by a constant.

When a linear transformation is applied to a random variable, a new random variable is created. To
illustrate, let X be a random variable, and let m and b be constants. Each of the following examples show
how a linear transformation of X defines a new random variable Y.

 Adding a constant: Y = X + b
 Subtracting a constant: Y = X - b
 Multiplying by a constant: Y = mX
 Dividing by a constant: Y = X/m
 Multiplying by a constant and adding a constant: Y = mX + b
 Dividing by a constant and subtracting a constant: Y = X/m - b

Note: Suppose X and Z are variables, and the correlation between X and Z is equal to r. If a new variable Y
is created by applying a linear transformation to X, then the correlation between Y and Z will also equal r.

How Linear Transformations Affect the Mean and Variance

Suppose a linear transformation is applied to the random variable X to create a new random variable Y.
Then, the mean and variance of the new random variable Y are defined by the following equations.

Y = mX + b and Var(Y) = m2 x Var(X)

where m and b are constants, Y is the mean of Y, X is the mean of X, Var(Y) is the variance of Y, and Var(X) is
the variance of X.

Note: The standard deviation (SD) of the transformed variable is equal to the square root of the variance.
That is, SD(Y) = sqrt[ Var(Y) ].
Test Your Understanding

Problem 1

The average salary for an employee at Acme Corporation is $30,000 per year. This year, management
awards the following bonuses to every employee.

 A Christmas bonus of $500.


 An incentive bonus equal to 10 percent of the employee's salary.

What is the mean bonus received by employees?

(A) $500
(B) $3,000
(C) $3,500
(D) None of the above.
(E) There is not enough information to answer this question.

Solution

The correct answer is C. To compute the bonus, management applies the following linear transformation to
the each employee's salary.

Y = mX + b
Y = 0.10 * X + 500

where Y is the transformed variable (the bonus), X is the original variable (the salary), m is the multiplicative
constant 0.10, and b is the additive constant 500.

Since we know that the mean salary is $30,000, we can compute the mean bonus from the following
equation.

Y = mX + b
Y = 0.10 * $30,000 + $500 = $3,500
Problem 2

The average salary for an employee at Acme Corporation is $30,000 per year, with a variance of 4,000,000.
This year, management awards the following bonuses to every employee.

 A Christmas bonus of $500.


 An incentive bonus equal to 10 percent of the employee’s salary.

What is the standard deviation of employee bonuses?

(A) $200
(B) $3,000
(C) $40,000
(D) None of the above.
€ There is not enough information to answer this question.

Solution

The correct answer is A. To compute the bonus, management applies the following linear transformation to
the each employee’s salary.

Y = mX + b
Y = 0.10 * X + 500

where Y is the transformed variable (the bonus), X is the original variable (the salary), m is the multiplicative
constant 0.10, and b is the additive constant 500.

Since we know the variance of employee salaries, we can compute the variance of employee bonuses from
the following equation.

Var(Y) = m2 * Var(X) = (0.1)2 * 4,000,000 = 40,000

where Var(Y) is the variance of employee bonuses, and Var(X) is the variance of employee salaries.

And finally, since the standard deviation is equal to the square root of the variance, the standard deviation
of employee bonuses is equal to the square root of 40,000 or $200.

Exercise
1. A uniform continuous random variable X is defined on the interval [24,144].It is transfomed into the
random variable Y according to the equation Y = 3X – 4
a. What are the expected value, variance and standard deviation of X ? ( 84 ), (1200) ,(20√3 )
(note : Var(X) = (𝑏−𝑎) on the interval [a,b] )
2

12

b. What is the interval on which Y is defined? ( [ 68,428) ]


c. What are the expected value, variance and standard deviation of Y ? ( 248 ), (10 800) ,(60√3 )
d. What is the relationship between E(X) and E(Y)? (E(Y) = 3E(X) – 4)
e. What is the relationship between Var(X) and Var(Y)? (Var(Y) = 32 Var(X)
Continuous Uniform Distribution
A random variable has a uniform distribution if each value of the random variable is
equally likely and the values of the random variable are uniformly distributed throughout
some specified interval. A uniform distribution is a distribution with constant probability.

This tutorial will help you understand the theory and proof of theoretical results of uniform
distribution.

Uniform distribution is also known as rectangular distribution (see the graph below)

You might also like